Saturday, 1 March 2014

Dr. Cooke testified that his examination of the lungs indicated old scarring indicative of a previous, healed, tuberculosis infection, and extensive fibrosis, in which were visible "particles of mineral matter ... of various shapes, but the large majority have sharp angles. The size varies from 393.6 to 3 µm in length....

[These] originated from asbestos and were, beyond a reasonable doubt, the primary cause of the fibrosis of the lungs and therefore of death"

"For nearly three hundred years, Lloyd's of London insurance policies were backed by wealthy British investors, who came to be known as "Names" because, in the early days, their signatures were written on the face of each Lloyd's policy. The Names participated in one-year venture syndicates, to insure risks, chiefly in maritime insurance. Each Name pledged his entire personal wealth to back up his share in the syndicate's policies. The syndicates accepted business for one year, then allowed two more years for claims to come in and be settled. Each syndicate closed its "year of account" and wound up its affairs after the end of the third year. The Names received their share of the profits, or paid their share of the losses, and their liability ended. If, however, all claims could not be settled by the end of the third year, the syndicate had to remain "open" and the profits or losses could not be shared among the Names until all claims were finally settled. This system was efficient and profitable in maritime business; the outcome of any given voyage was almost always known within the year of account, and settled within three.

As both commerce and insurance grew more complex, and especially as Lloyd's expanded into non-maritime business, syndicates found they could no longer close their affairs after only three years. Staying open longer, however, and thus delaying the distribution of profits, would threaten their financial base: Names might well look elsewhere for more reliable investments with more rapid returns. Lloyd's solution was to have each closing syndicate reinsure its remaining risks with a syndicate from the next year of account. For a premium paid, a still-open syndicate, during its third year, would assume any remaining Incurred But Not yet Reported ("IBNR") liabilities of the closing syndicate from the prior year by issuing it a specialized policy of Re-Insurance To Close ("RITC"). Lloyd's syndicates could thus continue distributing profits after three years, instead of having to radically alter their long-established and familiar business procedure.

When this RITC developed, there were only a few thousand members of Lloyd's, of whom perhaps a thousand, known as "working Names", actually conducted the business of Lloyd's insurance market. The rest ("external" Names) relied on their syndicate managing agents to protect their interests, by carefully evaluating each risk accepted, and by calculating the RITC in such a way that neither excessive profit nor loss was realized by the Names on the old syndicate or the new syndicate. It was extremely important that RITC be calculated fairly, because the individual Names who made up those syndicates were not necessarily the same people.

In order to carve out a share of the U.S. insurance market while a "buy-American" attitude prevailed in the 1930's, 1940's and 1950's, syndicates at Lloyd's issued many broadly worded policies, without monetary limits, insuring and reinsuring risks in the United States. The loose language of these policies gave Lloyd's a temporary competitive advantage over many U.S, carriers; however, these overly generous policies eventually came back to haunt them. By the 1960's and 1970's it was clear to a handful of the highly placed working Names that claims due to asbestosis, pollution and other health hazards (so-called "APH" losses) were ripening into lawsuits in which unanticipatedly large damages were being awarded by American courts. American companies turned to their insurers, and their insurers turned to their reinsurers, who in very many cases were syndicates at Lloyd's.

An avalanche of claims was thus working its way through the courts and down the chain of reinsurance obligations, toward the Lloyd's syndicates that held the RITC policies issued to the syndicates who, in prior years, had written the original, broadly worded policies. The avalanche was moreover apparently going to continue well past the year 2000. Since the original policies were written without monetary limits, the Names backing the syndicates that had assumed liability for these policies through the annual RITC process were facing financial ruin, and Lloyd's ability to "pay all claims" was in jeopardy. The Names would soon be personally liable for coming claims far in excess of their original investments in Lloyd's syndicates, and apparently in excess of their combined wealth besides. If word got out about the magnitude of the undisclosed liabilities latent within numerous syndicates at Lloyd's, incoming investment would cease, and Lloyd's would go the way of the "do-do" bird."